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FHA Loan Fees Increasing

FHA-backed loans, which help make home ownership attainable for many Americans, will get pricier in about a month.

In order to boost their dwindling capital reserves, the Federal Housing Administration announced on Monday that they will adjust their premium structure for FHA-insured mortgage loans.

Starting on April 1st, the upfront insurance premiums will rise from 1 percent to 1.75 percent of the base loan amount. FHA’s annual mortgage premium will also increase, by 0.10 percent for loans under $625,000 and 0.35 percent for amounts above that.

For a $300,000 loan, the new premium “works out to $5,250, up from $3,000, but because homebuyers are allowed to finance the upfront insurance premium into the balance of their mortgages, officials said the sticker shock from the higher fees would be relatively modest, provided that borrowers can qualify for a slightly larger loan.

On a loan amount of $300,000, we are seeing an increased payment of $35.42, which doesn’t sound too bad. However, many home buyers buy homes comparing what their monthly payment will be after they close. This hike in payment is equivalent to borrowing an additional $7000.

Starting next month, it’s as if the home became $7000 more expensive. What is the result? Buyers are going to have to pay more OR they’re going to have to offer less to the seller (to maintain the same mortgage payment they were comfortable with today). A $7000 lower offer is like another 2.5% decline of home prices. Not good for anyone.

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